May 19, 2016

Pay-TV Forecasts in Latin America Pose Challenges, Present Opportunities

In recent years, pay-TV operators in Latin America (LATAM) have experienced strong subscriber growth in an expanding market and a rising standard of living for lower-income households. The adoptions of leading-edge technologies, infrastructure improvements, and new business models have been key drivers of revenue and subscriber growth.

Despite the myriad opportunities, recent forecasts see challenges for LATAM pay-TV providers on the horizon and expect continued volatility in the market over the next few years. Leading-edge technologies, new competitors, and a wider array of content options are increasing the level of complexity for service providers across all categories – satellite, telecom, or cable.

Pay-TV operators face tough competition among regional and global competitors, and over-the-top (OTT) providers like Netflix. Additionally, they are under growing pressure to make operational platforms more flexible, while adopting new service delivery capabilities.


Pay-TV Opportunities Abound in LATAM

Dataxis Dataxis


These headwinds do not disparage the value proposition, however. The top twenty-five pay-TV networks in Latin America are available for seven out of ten subscribers across the region, according to the latest Dataxis TV Tracker. Indeed, digital pay-TV uptake has helped the Latin American pay-TV market exceed 69 million subscribers, equivalent to a 37.7% penetration over total households.

Pay-TV is growing solidly in the LATAM region, according to the Latin American Multichannel Advertising Council (LAMAC). “The pay-TV industry grows year-on-year, both in advertising and subscribers,” LAMAC President and CEO Gary McBride says. “During last year, pay-TV ads sales rocketed by 22% and pay-TV penetration rate neared 60%.”


Headwinds Include Market Maturity, Financial Concerns


There are signs that the growth rate is slowing throughout the region. To illustrate the point, Dataxis says Brazil, the region’s largest market, has been losing subscribers since the beginning of 2015. The region still leads the region with more than 19 million subscribers.

Mexico, the number two market in the region, grew by 3% during the same period, ending the year with about 18 million subscribers. Argentina, Colombia, and Venezuela all made positive strides during the period.

Pay TV subscriptions and pay-per-view (PPV) revenues in Latin America will grow by only 9% (or up by $1.6 billion) between 2015 and 2021, according to the fifth edition of the Digital TV Latin America Forecasts report. Economic woes are one reason for this slowdown, but market maturity is another.

The analyst firm found that the LATAM pay-TV sector ended 2015 with 69.84 million subscriptions, an increase of 4% compared to December 2014. But subscriptions ticked up by only 0.8% during the last three months of the year, signaling that a mature market and financial stability issues in specific countries is a harbinger of slow and unequal LATAM subscriber growth.

Nevertheless, there are significant bright points in that data – pay-TV penetration will reach 50.6% by 2021, up from 45% at end of 2015. Digital TV Research says 14 million additional pay TV homes will be added in Latin America between 2015 and 2021 for a total to 82 million subscribers.

Digital TV Research Digital TV Research


“Digital cable TV revenues overtook analog cable in 2014 and IPTV will pass analog cable by 2020. IPTV revenues will grow by the same amount as satellite TV and cable TV over this period,” said Simon Murray, Principal Analyst, Digital TV Research.

Satellite TV will continue to be the largest pay TV platform, with revenues reaching $13.1 billion in 2021, up from $12.6 billion in 2015. Cable TV revenues will be $5.6 billion in 2021, up from $5.1 billion in 2015.


The Bigger Picture


For telecom giants like Spain’s Telefónica and Mexico’s América Móvil, pay-TV growth has been a bright spot on their balance sheets.  Telefónica’s Latin America pay-TV operations posted 12% growth at the end of its fiscal first quarter.

América Móvil reached a pay-TV subscriber base of 21.9 million households throughout the region in the most recent quarter -- despite the fact that it is the smallest of the company’s fixed businesses.

The most significant opportunities will be realized by operators that dig deeper to discover what mix of services, device support, and marketing strategies will deliver the most compelling business case for operators.

The Format Recognition And Protection Association (FRAPA) recently released a report that discussed the challenges and opportunities for pay-TV operators in Latin America. Key takeaways are:

  • Spanish language broadcasters such as Univision have begun overtaking English language opposition in the key 18-49 demographic.
  • Argentina now boasts over 2,000 hours of content made for export each year.
  • Changes in laws and regulations across LATAM countries, designed to increase original, domestic and international content, has seen the rise in more local producers and an increase in the level of quality and quantity in local production, making the region more attractive to international partners.
  • Latin America is emerging as a creative powerhouse for TV production.

“The report shows what a hotbed of talent is alive and kicking across the LATAM region,” said Nicolas Smirnoff, FRAPA board member and Director of Prensario Internacional.

Offering a strong library of compelling content is paramount when operators are developing successful Pay-TV strategies in Latin America – a dynamic that is sparking a flurry of partnering arrangements between operators and content owners.

In late April, Lionsgate and Fox Networks Group Latin America inked a multi-year output agreement through which Lionsgate will supply first-run films for FNG’s pay TV and basic cable channels across Latin America. The move is a potential win-win for Lionsgate and Fox, enabling Lionsgate to gain maximum value for its titles and allowing FNG to offer more and higher quality content to its subscribers in Latin America.

Bottom Line: The LATAM market continues to spark excitement for pay-TV operators because of the rising wages experienced by many lower-income households is fueling demand for entertainment in general and pay-TV in particular. However, headwinds remain as the rate of subscriber growth in Latin America slows, and fierce competition from global service providers like AT&T and Telefonica are changing the game in LATAM pay-TV from a competitive and service offering point.

That said, slower growth is still growth and pay-TV operators do have significant growth opportunities in the region -- if they can optimize their platforms and play to their own operational strengths, while expanding their content offerings by collaborating with others on win-win strategies.